MACRO ANALYSIS: MNI US Macro Weekly: Poor Payrolls Trumps Patient Powell
Aug-01 19:36
- We have published and e-mailed to subscribers the MNI US Macro Weekly offering succinct MNI analysis across the range of macro developments over the past week.
- Please find the full report here.
Executive Summary
- The second half of the week has seen some significant moves in markets from first a patient Fed Chair Powell not giving a nod to a September rate cut before a weak payrolls report with huge downward revisions materially altered recent trends.
- Nonfarm payrolls growth underwhelmed at 73k in July but the major headline was the -258k two-month downward revision, of which -139k came from the private sector and -119k from the public sector. Outside of April 2020, that’s the largest two-month downward revision in at least forty-five years.
- We caution though that whilst jobs growth has soured sharply, it’s doing so along with a significant slowing in labor supply under immigration curbs.
- As such, the unemployment rate may have technically ticked up to a new cycle high of 4.248% (above 4.244% in May) but it continues to roughly plateau in the 4.0-4.25% range seen since last July. The median FOMC forecast from the June SEP had the unemployment rate increasing to an average 4.5% in 4Q25 as part of forecast with two rate cuts in 2025 so further deterioration would be expected.
- A note on the latest initial jobless claims data, which are back at 2019 averages, a period when the unemployment rate averaged 3.7%.
- The weak report prompted an extraordinary response from President Trump, directing his team to fire BLS Commissioner Erika McEntarfer. It’s a broadening out of criticism beyond the Fed’s Powell and its Board.
- Speaking after payrolls, Atlanta Fed’s Bostic (in a non-voting role this year) said he hasn’t changed his view that there should be just one rate cut this year.
- Elsewhere in a major week for data, core PCE inflation exceeded latest Fed tracking in June at 2.8% Y/Y, whilst away from any tariff impact, market-based services inflation printed 3.3% Y/Y. Various inflation metrics showed a continued stabilization at above 2% target rates.
- The Q2 GDP advance release meanwhile beat analyst expectations with 3.0% annualized although it was close to Atlanta Fed GDPNow expectations. PDFP moderated further to 1.2% annualized for its weakest since 4Q22 although could have been worse.
- As a precursor to next week’s ISM Services report, the Manufacturing counterpart was weak across the board in July. Prices paid pulled back from recent highs, new orders chalked up a sixth consecutive month firmly in contraction territory and the employment index fell to its lowest since mid-2020.
- Yields have tumbled after the weak payrolls report. A September cut is mostly priced now vs 50/50 before the release, with a cumulative 59bp by year-end and five cuts in total from current levels.
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AUDUSD TECHS: Northbound
Jul-02 19:30
- RES 4: 0.6700 76.4% retracement of the Sep 30 ‘24 - Apr 9 bear leg
- RES 3: 0.6688 High Nov 7 ‘24
- RES 2: 0.6603 High Nov 11 ‘24
- RES 1: 0.6590 High Jul 01
- PRICE: 0.6570 @ 16:24 BST Jul 02
- SUP 1: 0.6508 20-day EMA
- SUP 2: 0.6459/6373 50-day EMA / Low Jun 23 and a reversal trigger
- SUP 3: 0.6357 Low May 12
- SUP 4: 0.6275 Low Apr 14
The medium-term trend set-up in AUDUSD is unchanged, it remains bullish and this week’s gains strengthen current conditions. The break higher marks a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. Sights are on 0.6603 next, the Nov 11 2024 high. Key short-term support has been defined at 0.6373, the Jun 23 low. A pullback would be considered corrective.
US TSYS: Late SOFR/Treasury Option Roundup: SOFR Shifts To Calls Ahead NFP
Jul-02 19:18
SOFR & Treasury option flow remained mixed in late trade, SOFR options shifted toward low calls structures with underlying futures trading weaker, curves bear steepening ahead of tomorrow's heavy data dump that includes June NFP ahead Fri's holiday closure. That said, projected rate cut pricing firmed slightly vs. morning (*) levels: Jul'25 at -5.8bp (-4.8bp), Sep'25 at -29.4bp (-28.1bp), Oct'25 at -45.6bp (-44.3bp), Dec'25 at -64.7bp (-63.5bp).
- SOFR Options:
- 10,000 SFRH6 96.75/97.00 call spds 16.5 vs. 96.565/0.24%
- over 10,700 SFRZ5 96.37/96.43/96.50/96.56 call condors ref 96.325
- -5,000 SFRN5 95.75/95.93/96.00/96.18 call condors, 13.25 - more offered
- -5,000 SFRN5 96.00 calls, 4.5-4.25 ref 95.99
- +5,000 SFRU6 98.00/99.00 2x3 call spds, 8.0 ref 96.86
- +5,000 SFRU5 96.00/96.25/96.50 1x3x2 call flys, 2 ref 96.00
- 2,500 3QQ5 96.37/96.50 2x1 put spds ref 96.55
- -2,000 SFRN5 95.75/95.87/96.00 put flys, 3.5
- Block, 5,938 SFRU5 96.00/96.25/96.50 call flys, 4.0 vs. 95.985/0.15%
- Block, 5,750 0QN5 97.18 calls, 1.5 ref 96.90
- +2,000 SFRQ5 96.00/96.18 call spds, 4.25 ref 95.98
- +2,000 SFRN5 95.87/95.93 3x2 put spd, 2.75 ref 95.98
- +8,000 SFRZ5 95.75/95.87/96.25/96.37 put condors, 6.0 vs. 96.225/0.05
- +2,000 SFRU5 96.12/96.25/96.37 call flys, 1.5 ref 95.975
- Block/screen -5,000 SFRU5 96.00/96.31 call spds, 6.0 ref 95.975
- Treasury Options:
- 4,000 TYU5 114/115 call spds ref 111-18
- 6,000 USU5 104/107 2x1 put spds, 0.0 ref 114-23
- 2,000 USQ5 110 puts, 7
- 1,800 TYQ5 111.5/112.5 call spds, 25 ref 111-21
- +1,500 110/111 2x1 put spds, 8 vs. 111-18.5/0.05%
- 3,000 TUQ5 103.25/103.5/103.62/103.75 broken put condors ref 103-27.88
- over 7,700 TYQ5 110 puts, ref 111-22.5
- over 6,700 TYQ5 110.5 puts, ref 111-21
- +2,000 FVQ5 109/109.75 1x2 call spds, 4 vs 108-22.75/0.08%
- +2,500 TYU5 109/110/111 put trees, 9 vs. 111-17/0.03%
US: House Vote On Rule To Progress OBBB Does Not Look Imminent
Jul-02 19:18
Punchbowl's Jake Sherman suggests that a House vote on the "rule" to advance toward a debate and full vote on the "One Big Beautiful Bill" is not imminent, due to insufficient Republican votes at this stage. There is no discernable market reaction to the apparent delay, in part because passage was always likely to be a drawn-out process.
- @JakeSherman on X.com: "HOUSE REPUBLICANS are telling members to go back to their offices. It does not look like a vote on the rule is imminent."
- About 10 minutes earlier Sherman reported: "HOUSE REPUBLICANS are stuck at the moment. They don't have the votes for the rule right now. The floor has been open for nearly 2 hours as the leadership tries to find their way out."
- Fox's Chad Pergram on X.com concurs: "House stuck. Cannot even get to test vote on OBBB - because the pre-test vote is stuck. They don’t even have the votes for that. They may leave the pre-test vote open for an hour. Been open since 2:07 pm et"
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